MGM (MGM) Down 52% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for MGM Resorts (MGM). Shares have lost about 52% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is MGM due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

MGM Resorts Misses Earnings & Revenue Estimates in Q4

MGM Resorts reported fourth-quarter 2019 results, with earnings and revenues missing the respective Zacks Consensus Estimate. Notably, the top line missed the consensus mark in all of the trailing three quarters.

Adjusted earnings of 8 cents per share missed the consensus mark of 24 cents by 66.7%. However, the company had reported a loss of 3 cents in the prior-year quarter.

Total revenues were $3,185.1 million, which missed the Zacks Consensus Estimate of $3,208 million by 0.7%. Nonetheless, the top line increased 4.3% year over year. The improvement was backed by robust performance of MGM China and Regional Operations.

MGM China

MGM China’s net revenues increased 6% year over year to $727.4 million, owing to net revenue contribution of $346.2 million from MGM Cotai.

The opening of 25 new-to-market tables at MGM Cotai led to a 31% year-over-year increase in main floor table game wins. However, VIP table game wins also declined 20% from the prior-year quarter’s figure, primarily due to 33% fall in turnover at MGM Macau.

MGM China’s adjusted property EBITDAR (Earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs) increased 10% to $185.1 million from $168.3 million in the prior-year quarter. Moreover, adjusted property EBITDAR margin was 25.5%, up 100 basis points (bps) from the year-ago quarter’s figure.

Domestic Operations

Net revenues at Las Vegas Strip Resorts during fourth-quarter 2019 were $1,429.1 million, up 3.9% year over year. However, adjusted property EBITDAR declined 5% year over year and EBITDA margin contracted 256 bps compared with the prior-year quarter’s figure.

During quarter under review, net revenues from the company's regional operations amounted to $899.9 million, up 15% from the prior-year quarter’s tally. The upside can be attributed to revenues of $50 million from Empire City Casino and $68 million from MGM Northfield Park's operations. Adjusted property EBITDAR was reported at $228 million, up 14% from the year-ago quarter’s figure. However, adjusted property EBITDAR margin declined 28 bps to 25.4% year over year.

Casino revenues in the quarter under review fell 4% year over year at the company's Las Vegas Strip Resorts primarily due to 18% decline in table games win driven by Far East baccarat. This was partially offset by a 2% increase in slots win. However, the same increased 18% at its Regional Operations owing to the acquisition of Empire City Casino and the merger of MGM Northfield Park's operations.

At the Las Vegas Strip Resorts, food and beverage revenues rose 9% from the prior-year quarter’s level. The uptick was backed by the ramp-up of newly opened outlets at Park MGM as well as NoMad Las Vegas.

Balance Sheet

MGM Resorts ended the fourth quarter with cash and cash equivalents of $2,329.6 million as of Dec 31, 2019 compared with $1,526.8 million on Dec 31, 2018.

The company raised its quarterly dividend by 15.4% to 15 cents. The increased dividend will be paid out on Mar 16, 2020 to its shareholders on record as of Mar 10, 2020. In the reported quarter, the company repurchased 12 million of shares for $393 million.

It expects the robust Las Vegas market and successful implementation of MGM 2020 to drive EBITDA and free cash flow growth. Meanwhile, the company successfully realized material savings in labor, sourcing and revenue enhancement opportunity leading to greater efficiencies and faster decision making, throughout the organization.

2019 Highlights

In 2019, total revenues amounted to $12,899.7 million, up 9.7% year over year.

Adjusted EPS for the year ended Dec 31, 2019 was reported at $0.77 compared with $0.95 in 2018.

Total Adjusted EBITDAR was reported at $3,016.1 million compared with $2,837.7 million in 2018.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -77.14% due to these changes.

VGM Scores

At this time, MGM has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise MGM has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.